I'll admit it. I'm not perfect. Throughout the years, I've made my share of investing mistakes. But I believe I've actually learned something from them. So without further adieu, here are 6 Foolproof Profit Principles to live by!

Profit Principle #1: Harness the Power of Compounding.

"Compounding," Albert Einstein said, "is mankind's greatest invention because it allows for the reliable, systematic accumulation of wealth." Now, Einstein was a smart man. But you hardly have to be a genius to make this concept work for you.

Compounding is essentially reinvesting the interest you received from the money you initially invested. Here's an example:

If you invest $1,000 and earn 10% interest on your principal at the end of each year, you'll get $100 interest at the end of the first year. Makes sense, right? Now, if you reinvested that interest for a second year,  you would start with $1,100, and thus would earn $110 interest. Stay with it, and you'll more than double your money every eight years.

Check out how your own money can grow with our compounding calculator right now.

Always channel most of your money into investments that throw off some kind of return up front (dividends, interest etc.). Cash flow not only limits your downside and calms your nerves, but also gives you a chance to reinvest your income for more income.

Profit Principle #2: Don't Try to Time the Market.

Much of the conflicting advice you hear about investments stems from the time horizon of the speaker. One well-known pundit insists you should sell any stock that drops 8%–10%. OK, this rule may hold some validity for short-term traders who buy stocks on margin (which means with borrowed money). But margin calls and options trading is a dicey game and not for the more conservative investor looking to earn tax-free long-term capital gains.

When trying to time the market, many investors usually end up taking myriad small losses that would have turned into significant profits had they simply hung on.

On the flip side, beware of "momentum" advisors who trumpet stocks that have recently staged a dramatic run-up. These picks may continue to perform well for a while, but if you fail to sell them immediately when they start to plummet, you'll lose your shirt. Overnight plunges of 20%, 30% and even 50% aren't uncommon. Unless you plan on never sleeping again, timing the market is not the way to build wealth.

Profit Principle #3: Diversification Is Good... But You Don't Need to Own Everything.

It's astounding the bravado of those who say you can build an adequately diversified portfolio with only six or eight stocks. I would never trust my financial future to just a half dozen CEOs (however capable or honest). Let's face it, the business world is constantly changing… executives come and go… businesses run into sudden difficulties that no outsider could ever foresee.

On the other hand, it isn't necessary to bet on every pony in the field. Seven years ago, the shrewdest players had zero or near-zero exposure to Internet stocks. Instead, they were heavily weighted (far above what the market indexes would call for) in "stodgy" old economy businesses like real estate. When the Internet issues crashed, real estate soared.

These days, you need at least 20 stocks to insulate your portfolio from a blowup in any single sector. Some credited investment analysts even recommend up 40 to 60 stocks. The number is really up to you and your risk tolerance. Just remember: Spread your risk to make sure that each investment brings unique value to your portfolio.

Profit Principle #4: Owners Always Get Richer Than Lenders… Always.

Let's face it, "owners" no matter who they are and what they "own" always get richer than lenders. Always. That's why over the long term, investors (a.k.a. "stock-owners") will make far more money by investing in businesses than by lending their money to a bank. Now keep in mind, money in the bank changes everything. We all need a cash cushion to protect ourselves against unforeseen emergencies—consider keeping at least 6 months worth of living expenses in the form of Treasury bills, bank CDs or online savings accounts offering the highest interest rate you can get. Over the long run, though, you'll build more wealth by investing in common stocks.

Even if you're a retiree, think of allocating at least 60% of your portfolio to common stocks. When you retire, aim to earn at least a 3% average dividend yield on the stock segment of your portfolio.

For those younger investors reading this: Aim high. (A reasonable rule of thumb is 125% minus your age.)

Profit Principle #5: Focus on Value, Not Headlines.

Remember the old adage, "Don't believe everything you read?" Take heed: The media will nearly always shout the wrong message at the wrong time (especially when it comes to important buying or selling points). Some of you out there may even remember the absurd Money magazine's "Everybody's Getting Rich" cover story that ran near the top of the Internet mania in late 1999. Talk about making a massive generalization!

In order to keep your head when others are losing theirs, train yourself to react in the opposite direction when you see emotionally charged news stories. Learn to swim against the current, buck the trend and stay calm when everyone else is shouting "Fire!"

Do your own number-crunching. If you find real value, it's time to buy, regardless of what the talking heads on TV say. Vice versa on the sell side: When values are stretched and the commentators are gushing optimism, you'll be smart to head for the exit.

Profit Principle #6: Speculators Rarely Find a Gold Rush.

Last, but not least, in every era, get-rich-quick artists tout the virtues of high-risk speculations that are supposed to double your wealth in three months (or three days). Once in a while the formula actually works; usually it flops.

Think of Krispy Kreme (NYSE: KKD), Taser International (NASDAQ: TASR) and other sensational highfliers that CNBC and Investors Business Daily boosted earlier in this decade (to say nothing of the Internet stocks that were all the rage in the 1990s). If you must speculate, limit your exposure to a modest percentage of your total wealth. The lion's share belongs in blue chip stocks, high-grade bonds, well-secured (low-debt) real estate and perhaps a sliver of gold.

There's more to investing, of course, than just six foolproof strategies. Still, if you digest these six principles—and put them into practice—you'll run circles around 95% of the investors you meet. And isn't "gaining an edge" what investing is really all about?

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